How to buy a car, with less debt – CNBC

Planning to buy a car? You could be driving for a long time before you’re out of debt.

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As interest rates rise and vehicles become more expensive, that new car smell increasingly comes with larger loans and lengthier terms.

In December 2018, the average loan for a new car was just above $32,000, compared with around $26,000 in 2010, according to Edmunds, which provides research on the car industry. The interest paid on an auto loan is now $5,555, up from $2,852.

The typical term for an auto loan has swelled to 68 months, up from 61 in 2010.

Financing a car is likely more expensive today than ever before, said Jeremy Acevedo, the manager of industry analysis at Edmunds. With the Federal Reserve‘s recent quarter-point interest rate increase, that trend could pick up, “potentially dampening sales in 2019 as shoppers hold off purchasing,” Acevedo said.

However, you may be able to reduce your car debt. Here are some strategies.

Used cars are typically less expensive than new ones and so the loans for them are often smaller, said Philip Reed, an automotive writer at personal finance website NerdWallet.

“If you turn on the football game, you will be brainwashed into thinking you need a new car,” Reed said. “People don’t understand how reliable a good used car can be.”

The average monthly auto loan payment for a new car in December 2018 was $558, compared with $413 for a used vehicle, according to Edmunds.

What’s more, Reed said, while the average age of a car on the road is 12 years old, the price tag can halve after just three years.

You should go to your bank or credit union and get pre-approved for an auto loan before you enter a car dealership, said Rebecca Borne, senior policy counsel at the Center for Responsible Lending. “It puts the consumer in a better bargaining position,” she said. “It forces the dealership down on the rate.”

Borne also recommends “cross-shopping” at other dealerships to try to lock in the best price on a given car. Autotrader is one database of used and new cars.

Don’t be sucked in by low monthly payments, Borne said. If you’re able to make higher payments on a shorter loan term you’ll save overall.

And resist the often unnecessary add-ons that many dealerships push, she added, such as extended warranties and additional insurance. “They give a windfall to the dealer without giving much benefit to the consumer,” she said.

Be on the lookout for car-buying incentives that could save you money, including loans with zero-percent interest or cash-back deals, Reed said. You can learn about these offers on websites such as Edmunds and Kelley Blue Book, or directly with the car manufacturer.

Excellent credit is often needed to secure the zero percent interest rate offers, Reed said, but it can’t hurt to apply.

“Even if you fall short,” he said, “there’s a good chance you’ll still beat current rates.”

Buying a car can be stressful. There’s so much to think about, and I’m no expert. So when I came across this site, I was delighted. Here, in one place was all the information — and in layman’s terms — that I needed to make a decision. And as if that wasn’t enough, the site contained page after page of practical hints and tips to help buyers navigate their way through what, let’s face it, is a complicated business. Where will I go to research my next car? Take a guess!

G. Anderson

Aberdeen, Scotland

Jim is on a mission to help car buyers get the information they need to make educated decisions when it comes to purchasing a car. Jim provides sound advice that can properly guide the first time buyer to the seasoned purchaser. I love to see experts like Jim willfully share their knowledge to help people. Thanks for all that you do Jim!